Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended March 31, 2007

or

o

Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

Commission
file number: 0-27617

THE MANAGEMENT NETWORK GROUP, INC.

(Exact name of registrant as specified in its charter)

DELAWARE

48-1129619

(State or other jurisdiction of incorporation or organization)

(I.R.S. Employer Identification No.)

7300 COLLEGE BLVD., SUITE 302, OVERLAND PARK, KS

66210

(Address of principal executive offices)

(Zip Code)

913-345-9315

Registrants telephone number, including area code

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for
such shorter period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes o No þ This Quarterly Report on
Form 10-Q for the quarter ended March 31, 2007 is being filed late.

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer,
or a non-accelerated filer. See definition of accelerated filer and large accelerated filer in
Rule 12b-2 of the Exchange Act.

Voting  $.001 par value, 100,000,000 shares authorized; 35,949,081 and 35,989,081 issued as of
March 31, 2007 and December 30, 2006, respectively; 35,749,081 and 35,789,081 shares outstanding
as of March 31, 2007 and December 30, 2006, respectively

Selling, general and administrative [includes net non-cash
share-based compensation (credits) expense of $(296) and $567 for
the thirteen weeks ended March 31, 2007 and April 1, 2006,
respectively]

6,780

5,638

Special Committee investigation (1)

1,559

Intangible asset amortization

540

115

Total operating expenses

8,879

5,753

Loss from operations

(2,085

)

(2,142

)

Interest income

417

535

Loss before
income tax benefit (provision)

(1,668

)

(1,607

)

Income tax benefit (provision)

1

(21

)

Net loss

(1,667

)

(1,628

)

Other comprehensive item  Foreign currency translation adjustment

42

4

Comprehensive loss

$

(1,625

)

$

(1,624

)

Loss per common share

Basic and diluted

$

(0.05

)

$

(0.05

)

Weighted average shares used in calculation of net loss per common share

Basic and diluted

35,716

35,625

(1)

For a summary of the Special Committee investigation, refer to Note 2 of the Consolidated
Financial Statements included in the Annual Report on Form 10-K as filed with the Securities and
Exchange Commission on May 14, 2007.

The condensed consolidated financial statements and accompanying notes of The Management Network
Group, Inc. (TMNG, TMNG Global, we, us, our, or the Company) as of March 31, 2007, and
for the thirteen weeks ended March 31, 2007 and April 1, 2006 are unaudited and reflect all normal
recurring adjustments which are, in the opinion of management, necessary for the fair presentation
of the Companys condensed consolidated financial position, results of operations, and cash flows
as of these dates and for the periods presented. The condensed consolidated financial statements
have been prepared in accordance with accounting principles generally accepted in the United States
of America (US GAAP) for interim financial information. Consequently, these statements do not
include all the disclosures normally required by US GAAP for annual financial statements nor those
normally made in the Companys annual report on Form 10-K. Accordingly, reference should be made to
the Companys annual consolidated financial statements and notes thereto for the fiscal year ended
December 30, 2006, included in the 2006 Annual Report on Form 10-K (2006 Form 10-K) for
additional disclosures, including a summary of the Companys accounting policies. The Condensed
Consolidated Balance Sheet as of December 30, 2006 has been derived from the audited Consolidated
Balance Sheet at that date but does not include all of the information and footnotes required by US
GAAP for complete financial statements.

Principles of Consolidation  The consolidated statements include the accounts of TMNG and its
wholly-owned subsidiaries. On January 2, 2007, the Company acquired one-hundred percent of the
outstanding common stock of Cartesian Limited (Cartesian), a United Kingdom-based software
engineering and consulting firm. The results of Cartesian are included in the results of
operations subsequent to the date of acquisition. A wholly-owned subsidiary, Cambridge Adventis
Ltd., was formed in March 2006. On April 3, 2006, Cambridge Adventis Ltd. acquired the business
and primary assets of Adventis Ltd., the international operations of Adventis Corporation, a global
consulting firm specializing in telecom, technology and digital media. The results of Cambridge
Adventis Ltd. are included in the results of operations subsequent to the date of formation.

Revenue Recognition  We recognize revenue from time and materials consulting contracts in the
period in which our services are performed. In addition to time and materials contracts, our other
types of contracts include time and materials contracts not to exceed contract price, fixed fee
contracts, and contingent fee contracts. We recognize revenues on fixed fee contracts and time and
materials contracts not to exceed contract price using the percentage
of completion method prescribed by AICPA Statement of Position (SOP) No. 81-1,
Accounting for Performance
of Construction-Type and Certain Production-Type Contracts.

As a result of the Cartesian acquisition, the Company
now develops, installs and supports customer
software in addition to its traditional consulting services. The Company recognizes revenue in
connection with its software sales agreements utilizing the SOP
No. 81-1 percentage of completion method. These agreements include software
right-to-use licenses (RTUs) and related customization and implementation services. Due to the
long-term nature of the software implementation and the extensive software customization based on
customer specific requirements normally experienced by the Company, both the RTU and implementation
services are treated as a single element for revenue recognition purposes.

The SOP
No. 81-1 percentage-of-completion methodology involves recognizing revenue using the percentage of
services completed, on a current cumulative cost to total cost basis, using a reasonably consistent
profit margin over the period. Due to the longer term nature of these projects, developing the
estimates of costs often requires significant judgment. Factors that must be considered in
estimating the progress of work completed and ultimate cost of the projects include, but are not
limited to, the availability of labor and labor productivity, the nature and complexity of the work
to be performed, and the impact of delayed performance. If changes occur in delivery, productivity
or other factors used in developing the estimates of costs or revenues, we revise our cost and
revenue estimates, which may result in increases or decreases in revenues and costs, and such
revisions are reflected in income in the period in which the facts that give rise to that revision
become known.

In addition to the professional services related to the customization and implementation of its
software, the Company also provides post-contract support (PCS) services, including technical
support and maintenance services. For those contracts that include PCS service arrangements which
are not essential to the functionality of the software solution, we separate the SOP No. 81-1
software services and PCS services utilizing the multiple-element
arrangement model prescribed by Emerging
Issues Task Force (EITF) No. 00-21, Revenue Arrangements with Multiple Deliverables. EITF No.
00-21 addresses the accounting treatment for an arrangement to provide the delivery or performance
of multiple products and/or services where the delivery of a product or system or performance of
services may occur at different points in time or over different periods of time. The Company
utilizes EITF No. 00-21 to separate the PCS service elements and allocate total contract
consideration to the contract elements based on the relative fair value of those elements.
Revenues from PCS services are recognized ratably on a straight-line basis over the term of the
support and maintenance agreement.

We also may enter into contingent fee contracts, in which revenue is subject to achievement of
savings or other agreed upon results, rather than time spent. Due to the nature of contingent fee
contracts, we recognize costs as they are incurred on the project and defer revenue recognition

until the
revenue is realizable and earned as agreed to by our clients. Although these contracts can be very rewarding, the profitability of these contracts is dependent on our ability to deliver
results for our clients and control the cost of providing these services. Both of these types of
contracts are typically more results-oriented and are subject to greater risk associated with
revenue recognition and overall project profitability than traditional time and materials
contracts. Revenues and costs associated with contingent fee contracts were not material for the
thirteen weeks ended March 31, 2007 or April 1, 2006.

Research and Development and Capitalized Software Costs - Software development costs are accounted
for in accordance with Statement of Financial Accounting Standards (SFAS) No. 86, Accounting
for the Costs of Computer Software to Be Sold, Leased, or Otherwise Marketed. Capitalization of
software development costs for products to be sold to third parties begins upon the establishment
of technological feasibility and ceases when the product is available for general release. The
establishment of technological feasibility and the ongoing assessment of recoverability of
capitalized software development costs require considerable judgment by management concerning
certain external factors including, but not limited to, the date technological feasibility is
reached, anticipated future gross revenue, estimated economic life and changes in software and
hardware technologies. We capitalize development costs incurred during the period between the
establishment of technological feasibility and the release of the final product to customers if
such costs are material. During the thirteen weeks ended March 31, 2007, no software development
costs were capitalized and $272,000 of these costs were expensed as incurred. No software
development costs were incurred in the thirteen weeks ended April 1, 2006.

The company also incurs research and development costs associated with development of new offerings
and services. These product development costs are expensed as incurred. Research and development
costs associated with product development were $180,000 in the thirteen weeks ended April 1, 2006.
No product development costs were incurred in the thirteen weeks ended March 31, 2007.

Recent Accounting Pronouncements  In
September 2006, the Financial Accounting Standards Board
(FASB) issued SFAS No. 157, Fair Value
Measurements. This statement defines fair value, establishes a framework for using fair value to
measure assets and liabilities, and expands disclosures about fair value measurements. The
statement applies whenever other statements require or permit assets or liabilities to be measured
at fair value. SFAS No. 157 is effective for fiscal years beginning after November 15, 2007. We
are currently evaluating the impact of this adoption on our consolidated financial statements.

In February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial Assets and
Liabilities. This statement permits entities to choose to measure many financial instruments and
certain other items at fair value. If the fair value option is elected, unrealized gains and
losses will be recognized in earnings at each subsequent reporting date. SFAS No. 159 is effective
for fiscal years beginning after November 15, 2007. We are currently evaluating the impact of this
adoption on our consolidated financial statements.

2. Business Combinations

On January 2, 2007, the Company acquired one-hundred percent of the outstanding common stock of
Cartesian for a total purchase price of approximately $6.5 million, plus up to approximately $9.2
million in potential future earn-out consideration based upon the performance of Cartesian after
the closing date. An additional $0.5 million in transaction costs were capitalized as part of the
purchase price. The selling shareholders continue to be employed by and manage Cartesian after the
closing date pursuant to written employment agreements. Any future purchase consideration is not
contingent on the continued employment of the selling shareholders. TMNG assumed all liabilities
of Cartesian, subject to certain tax indemnities on the part of the selling shareholders.

The measurement of the respective assets and liabilities recognized in connection with the
acquisition has been made in accordance with the provisions of SFAS No. 141, Business
Combinations. The fair value of the net assets acquired in the Cartesian acquisition exceeded the
total consideration paid by the Company, resulting in negative
goodwill of $3.5 million. Because
the acquisition involves contingent consideration, the Company is required to recognize additional
purchase consideration equal to the lesser of the negative goodwill or the maximum amount of
contingent consideration of $9.2 million. The negative goodwill is included in the
total purchase price and reflected as a current liability based on the anticipated
resolution of the contingent feature. If and when contingent payments are earned, we will apply
the payments against these contingent liabilities. Any contingent payments in excess of the
initial accrued contingent consideration will be recorded as goodwill. To the extent contingent
payments are not made, the Company will reduce the basis of certain acquired assets and any
remaining negative goodwill will be charged to the results of operations as an extraordinary gain.

The
aggregate purchase price of $10.6 million consists of the following (in thousands):

Cash

$

7,030

Accrued contingent consideration

3,541

Total purchase price

$

10,571

The following table summarizes the estimated fair value of the assets acquired and liabilities
assumed as of the date of acquisition. The allocation of the purchase price is based on preliminary
estimates and is subject to further refinement. The preliminary allocation assigned to
identifiable intangible assets was determined with the assistance of an independent appraisal firm.

At January 2, 2007
(Amounts in Thousands)

Acquired cash

$

1,787

Other current assets

6,048

Property, plant and equipment

533

Customer relationships

2,368

Acquired software

2,961

Employment agreements

1,776

Customer backlog

395

Tradename

395

Total assets acquired

16,263

Current liabilities assumed

3,332

Deferred
income tax liabilities recognized

2,360

Total
liabilities assumed and recognized

5,692

Net assets acquired

$

10,571

The following table summarizes the estimated useful life for the identifiable intangible
assets. No residual values have been identified with these assets and each are amortized on a
straight-line basis.

Estimated

useful life

Identifiable Intangible Asset

(in months)

Customer relationships

48

Acquired software

48

Employment agreements

36

Customer backlog

12

Tradename

24

The transaction was structured as a stock acquisition, therefore the goodwill and specifically
identifiable intangible assets recorded in the transaction will not be deductible for income tax
purposes.

On April 3, 2006, TMNG acquired the business and primary assets of Adventis Ltd., the international
operations of Adventis Corporation, a Delaware corporation and the parent of Adventis Ltd., a
global consulting firm specializing in the interrelated sectors of telecom, technology and digital
media. The acquired operations of Adventis Ltd. consisted of 27 consultants located in London,
Berlin, and Shanghai with revenues from clients in Europe and Asia. The transaction was valued at a
purchase price of approximately $1.93 million, with approximately $1.5 million paid in cash at
closing, plus the assumption of approximately $432,000 in net working capital deficiency, which
included $269,000 in professional fees and other costs related directly to the acquisition. During
the fourth quarter of fiscal year 2006, the Company recognized a $2.1 million charge for the
impairment of the carrying amount of Adventis Ltd. The impairment charge was the result of lower
than expected operating results coupled with a reduction in the size and scope of operations which
impacted our assessment of future cash flows of the Adventis business. The impairment charge
reduced the net carrying amount of Adventis intangible assets to zero.

The operating results of Adventis and Cartesian have been included in the Condensed Consolidated
Statements of Operations and Comprehensive Loss subsequent to the date of the purchases. The
following reflects pro forma combined results of the Company, Cartesian

and Adventis as if the acquisitions had occurred as of the earliest period presented. In
managements opinion, this pro forma information does not necessarily reflect the actual results
that would have occurred nor is it necessarily indicative of future results of operations of the
combined entities.

For the Thirteen

Weeks Ended

April 1,

(in thousands, except per share amounts)

2006

Total revenues

$

10,857

Net loss

$

(2,004

)

Basic and diluted net loss per common share

$

(0.06

)

3. Business Segments

The Company identifies its segments based on the way management organizes the Company to assess
performance and make operating decisions regarding the allocation of resources. In accordance with
the criteria in SFAS No. 131, Disclosure about Segments of an Enterprise and Related Information,
the Company has concluded it has two reportable segments beginning in the first quarter of fiscal
2007, the Management Consulting Services segment and the Software Solutions segment. The
Management Consulting Services segment is comprised of four operating segments (Operations,
Strategy, Marketing and International) which are aggregated into one reportable segment.
Management Consulting Services includes consulting services related to business strategy and
planning, marketing and customer relationship management, billing system support, operating system
support, revenue assurance, corporate investment services, and business model transformation.
Software Solutions is a single reportable operating segment that provides custom developed
software, consulting and technical services. These services range from developing initial business
and system requirements, to software development, software configuration and implementation, and
post-contract customer support.

The accounting policies for the segments are the same as those described in the summary of
significant accounting policies in Note 1 and in our 2006 Form 10-K. Management evaluates segment
performance based upon income (loss) from operations, excluding share-based compensation
(benefits), depreciation and intangibles amortization. Inter-segment sales were immaterial in the
first quarter of fiscal 2007. The Company had one reporting segment during the first quarter of
fiscal 2006, the Management Consulting Services segment.

Summarized financial information concerning the Companys reportable segments is shown in the
following table (amounts in thousands):

Management

Not

Consulting

Software

Allocated to

Services

Solutions

Segments

Total

For the thirteen weeks ended March 31, 2007:

Revenues

$

9,832

$

5,281

$

15,113

Income (loss) from operations

3,184

1,427

$

(6,696

)

(2,085

)

Total assets

$

9,844

$

6,567

$

56,379

$

72,790

For the thirteen weeks ended April 1, 2006:

Revenues

$

7,163

$

7,163

Income (loss) from operations

3,009

$

(5,151

)

(2,142

)

Total assets

$

6,843

$

66,033

$

72,876

Segment assets, regularly reviewed by management as part of its overall assessment of the
segments performance, include both billed and unbilled trade accounts receivable, net of
allowances, and certain other assets. Assets not assigned to segments include cash and cash
equivalents, property and equipment, goodwill and intangible assets and deferred tax assets,
excluding deferred tax assets recognized on accounts receivable reserves, which are assigned to
their respective segment.

In accordance with the provisions of SFAS No 131, revenues earned in the United States and
internationally based on the location where the services are performed are shown in the following
table (amounts in thousands):

There were no changes in the carrying amounts of goodwill during the thirteen weeks ended March 31,
2007.

Included in the Companys consolidated balance sheets as of March 31, 2007 (reflecting the
acquisition of Cartesian on January 2, 2007) and December 30, 2006, are the following identifiable
intangible assets (amounts in thousands):

March 31, 2007

December 30, 2006

Accumulated

Accumulated

Cost

Amortization

Cost

Amortization

Acquired software

$

2,953

$

(185

)

Customer relationships

2,362

(148

)

1,908

(1,879

)

Employment agreements

1,772

(148

)

Customer backlog

394

(98

)

Tradename

394

(49

)

S3 license agreement

1,500

(411

)

1,500

(340

)

Total

$

9,375

$

(1,039

)

$

3,408

$

(2,219

)

The customer relationships of $1.9 million as of December 30, 2006 were fully amortized during
the thirteen weeks ended March 31, 2007.

Intangible amortization expense for the thirteen weeks ended March 31, 2007 and April 1, 2006 was
$723,000 and $115,000, respectively, including $183,000 reported in cost of services for the
thirteen weeks ended March 31, 2007. Intangible amortization expense is estimated to be
approximately as follows (in thousands):

Estimated

intangible

Total estimated

amortization to

intangible

be included in

Future Period

amortization

cost of services

Remainder of fiscal year 2007

$

2,100

$

554

Fiscal year 2008

2,407

738

Fiscal years 2009  2011

3,829

1,477

5. Share Based Compensation

The Company applies the provisions of SFAS No. 123R, Share-Based Payment, which establishes the
accounting for stock-based awards. The Company issues stock option awards and nonvested share
awards under its share-based compensation plans. The key provisions of the Companys share-based
compensation plans are described in Note 5 of the Companys consolidated financial statements
included in the 2006 Form 10-K.

The Company did not recognize any income tax benefit for share-based compensation arrangements for
the thirteen weeks ended March 31, 2007 and April 1, 2006. In addition, no costs related to
share-based compensation expense were capitalized during the thirteen weeks ended March 31, 2007
and April 1, 2006. During the first quarter of 2007, the Company revised its estimate of options
that are expected to be forfeited prior to vesting. As a result of this change in estimate,
pre-tax share-based compensation expense was reduced by $968,000.

A summary of the option activity of the Companys 1998 Equity Incentive Plan, as amended and
restated (the 1998 Plan), as of March 1, 2007 and changes during the thirteen weeks then ended is
presented below:

WEIGHTED AVERAGE

SHARES

EXERCISE PRICE

Outstanding at December 30, 2006

5,465,594

$3.78

Granted

500,000

$1.62

Exercised

(30,000

)

$1.27

Forfeited/cancelled

(1,047,001

)

$3.47

Outstanding at March 31, 2007

4,888,593

$3.64

Options vested and expected to vest
at March 31, 2007

4,574,539

$3.76

Options exercisable at March 31, 2007

2,881,585

$4.76

Weighted average fair value of
options granted during the period

$1.10

Nonvested Shares

A summary of the status of nonvested shares granted under the 1998 Plan as of March 1, 2007 and
changes during the year then ended is presented below:

WEIGHTED AVERAGE

GRANT DATE

SHARES

FAIR VALUE

Outstanding at December 30, 2006

221,750

$2.30

Vested

(43,750

)

$2.24

Forfeited/Cancelled

(70,000

)

$2.48

Outstanding at March 31, 2007

108,000

$2.22

2000 Supplemental Stock Plan

A summary of the option activity of the Companys 2000 Supplemental Stock Plan as of March 1, 2007
and changes during the year then ended is presented below:

WEIGHTED AVERAGE

SHARES

EXERCISE PRICE

Outstanding at December 30, 2006

1,121,972

$4.02

Forfeited/cancelled

(231,761

)

$4.34

Outstanding at March 31, 2007

890,211

$3.93

Options vested and expected to vest
at March 31, 2007

851,003

$4.02

Options exercisable at March 31, 2007

500,368

$5.27

6. Earnings (Loss) Per Share

The Company calculates and presents earnings (loss) per share using a dual presentation of basic
and diluted earnings (loss) per share. Basic earnings (loss) per share is computed by dividing net
income (loss) by the weighted average number of common shares outstanding for the period. The
weighted average number of common shares outstanding excludes treasury shares purchased by the
Company. Diluted earnings (loss) per share is computed in the same manner except the weighted
average number of shares is increased for dilutive securities.

In accordance with the provisions of SFAS 128, Earnings per Share, the Company uses the treasury
stock method for calculating the dilutive effect of employee stock options and nonvested shares.
These instruments will have a dilutive effect under the treasury stock method only when the
respective periods average market value of the underlying Company common stock exceeds the actual
proceeds. In applying the treasury

stock method, assumed proceeds include the amount, if any, the employee must pay upon exercise, the
amount of compensation cost for future services that the Company has not yet recognized, and the
amount of tax benefits, if any, that would be credited to additional paid-in capital assuming
exercise of the options and the vesting of nonvested shares. The Company has not included the
effect of stock options in the calculation of diluted loss per share for the thirteen weeks ended
March 31, 2007 and April 1, 2006 as the Company reported a net loss for these periods and the
effect would have been anti-dilutive.

7. Income Taxes

In the
thirteen weeks ended March 31, 2007 and April 1, 2006, the
Company recorded income tax benefit (provision) of $1,000 and $(21,000),
respectively. The tax benefit (provision) in each period is primarily related to
state income taxes. During both periods, the Company recorded full
valuation allowances
against income tax benefits related to domestic operations in
accordance with the provisions of SFAS No. 109 Accounting
for Income Taxes, which requires an estimation of the
recoverability of the recorded income tax asset balances. As of
March 31, 2007, the Company has recorded $33.5 million of
valuation allowances attributable to its net deferred tax assets.

The
Corporation adopted the provisions of FASB Interpretation
No. 48, Accounting for Uncertainty in
Income Taxes, an interpretation of FASB Statement 109,
(FIN 48) effective January 1, 2007. FIN 48 prescribes a
two-step process to determine the amount of tax benefit to be
recognized. First, the tax position must be evaluated to determine
the likelihood that it will be sustained upon external examination.
If the tax position is deemed more-likely-than-not to be
sustained, the tax position is then assessed to determine the amount
of benefit to recognize in the financial statements. The amount of
the benefit that may be recognized is the largest amount that has a
greater than 50 percent likelihood of being realized upon
ultimate settlement with the taxing authority. Tax positions that
previously failed to meet the more-likely-than-not recognition
threshold should be recognized in the first subsequent financial
reporting period in which that threshold is met. Previously
recognized tax positions that no longer meet the more-likely-than-not
recognition threshold should be derecognized in the first subsequent
financial reporting period in which that threshold is no longer met.

FIN 48 requires that the cumulative effect of the change in accounting principle be recorded as an
adjustment to opening accumulated deficit. As a result of the
implementation of FIN 48, the
Company recognized a cumulative effect adjustment of $223,000 as an increase to beginning
accumulated deficit. In addition, the Company identified approximately $271,000 in liabilities for
unrecognized tax benefits which were previously reserved. The
liability for uncertain tax positions was $501,000 as of March 31, 2007 and is included in
Other noncurrent liabilities on the condensed
consolidated balance sheet. The adoption of FIN 48 did not have a material effect on the
results of operations, financial condition or cash flows during the first quarter of fiscal year
2007. However, FIN 48 may add volatility to our effective tax rate and therefore our expected
income tax expense in future periods.

The Company recognizes interest accrued related
to unrecognized tax benefits in interest expense
and penalties as a component of the income tax provision. As of March 31, 2007 and December 31, 2006,
the total amount of accrued income tax-related interest and penalties
included in the Condensed Consolidated Balance Sheet was $146,000 and
$139,000, respectively.
As of March 31, 2007, there are no positions for which it is reasonably possible that the total
amount of unrecognized tax benefits will significantly increase or decrease within the next 12
months.

The Company or one of its subsidiaries files income tax returns in the U.S. federal
jurisdiction, and various states and foreign jurisdictions. With few exceptions, the Company is no
longer subject to U.S. federal, state and local, or non-U.S. income tax examinations by tax
authorities for years before 2002. As of March 31, 2007, there are no current examinations
on-going by tax authorities.

8. Loans to Officers

As of March 31, 2007, there is one outstanding line of credit between the Company and its Chief
Executive Officer, Richard P. Nespola, which originated in fiscal year 2001. Aggregate borrowings
outstanding against the line of credit at March 31, 2007 and December 30, 2006 totaled $300,000 and
are due in 2011. These amounts are included in other assets in the non-current assets section of
the balance sheet. In accordance with the loan provisions, the interest rate charged on the loans
is equal to the Applicable Federal Rate (AFR), as announced by the Internal Revenue Service, for
short-term obligations (with annual compounding) in effect for the month in which the advance is
made, until fully paid. Pursuant to the Sarbanes-Oxley Act, no further loan agreements or draws
against the line may be made by the Company to, or arranged by the Company for its executive
officers. Interest payments on this loan are current as of March 31, 2007.

In June 1998, the bankruptcy trustee of a former client, Communications Network Corporation, sued
TMNG for a total of $320,000 in the U.S. Bankruptcy Court in New York seeking recovery of $160,000
alleging an improper payment of consulting fees paid by the former client during the period from
July 1, 1996, when an involuntary bankruptcy proceeding was initiated against the former client,
through August 6, 1996, when the former client agreed to an order for relief in the bankruptcy
proceeding, and $160,000 in consulting fees paid by the former client after August 6, 1996. The
bankruptcy trustee also sued TMNG for at least $1.85 million for breach of contract, breach of
fiduciary duties and negligence. In March 2006, the Company reached a settlement agreement with the
bankruptcy trustee whereby the Company agreed to pay the trustee $255,000 in exchange for being
released from all potential liability under the suits discussed above. This settlement was fully
reserved for as of December 31, 2005.

As of March 31, 2007, the Company had outstanding demands aggregating approximately $1.0 million by
the bankruptcy trustees of several former clients in connection with collected balances near the
customers respective bankruptcy filing dates. One of these demands originated through the
acquisition of Tri-Com in 2001, resulting in a contingent purchase price to the seller. Although
the Company did not believe preferential payments had been received from this former client, the
Company had reserves of $727,000 to cover any liability resulting from the remaining outstanding
claims and the contingent purchase price. In May 2007, the Company reached a settlement agreement
with the bankruptcy trustee whereby the Company agreed to pay $565,000 in exchange for being
released from all potential liability under the demands discussed above. A small gain was
recognized in fiscal year 2006 as a result of this subsequent event. The Company is currently
working to finalize settlement for the contingent purchase price component of the Tri-Com
acquisition.

The Company may become involved in various legal and administrative actions arising in the normal
course of business. These could include actions brought by taxing authorities challenging the
employment status of consultants utilized by the Company. In addition, future customer bankruptcies
could result in additional claims on collected balances for professional services near the
bankruptcy filing date. While the resolution of any of such actions, claims, or the matters
described above may have an impact on the financial results for the period in which they occur, the
Company believes that the ultimate disposition of these matters will not have a material adverse
effect upon its consolidated results of operations, cash flows or financial position.

ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

In addition to historical information, this quarterly report contains forward-looking statements.
Certain risks and uncertainties could cause actual results to differ materially from those
reflected in such forward-looking statements. Factors that might cause a difference include, but
are not limited to, those discussed in the sections entitled Managements Discussion and Analysis
of Financial Condition and Results of Operations and Risk Factors in our annual report on Form
10-K for the fiscal year ended December 30, 2006. Readers are cautioned not to place undue reliance
on these forward-looking statements, which reflect managements opinions only as of the date of
this report. We undertake no obligation to revise, or publicly release the results of any revision
to, these forward-looking statements. Readers should carefully review the risk factors described in
our annual report and in other documents that we file from time to time with the Securities and
Exchange Commission.

The following should be read in connection with Managements Discussion and Analysis of Financial
Condition and Results of Operations as presented in our annual report on Form 10-K for the fiscal
year ended December 30, 2006.

EXECUTIVE FINANCIAL OVERVIEW

Our revenues for the first quarter ending on March 31, 2007 increased 111.0% to $15.1 million,
compared to the same period of 2006. The results for the thirteen weeks ended March 31, 2007
include the acquisitions of Adventis Ltd. (Adventis) on April 3, 2006, and Cartesian Ltd.
(Cartesian) on January 2, 2007. The details of these acquisitions are outlined in Item 1, Note
2, Business Combinations, to the condensed consolidated financial statements. These acquisitions
combined with our investment in targeting the cable industry have re-positioned the Company to
better serve consolidating telecommunications carriers and the converging global media and
entertainment companies. With the acquisition of Cartesian, we have added a reporting segment, the
Software Solutions segment, to our Management Consulting Services segment. The Software Solutions
segment includes revenues from Cartesians widely deployed modular software suite, called
AscertainTM, which features advanced revenue assurance and data integrity tools that
support fixed, wireless, ISP, data and content environments. Our acquisitions and recruitment
efforts are helping us build what we believe is a more sustainable revenue model and expanding our
global presence. In the first quarter of fiscal 2007, our international operations have grown to
approximately 50% of our revenue compared to 3% for the comparable period of 2006. Revenues
excluding the acquired Adventis and Cartesian businesses increased 23.7% compared with the first
quarter of 2006 primarily due to our cable practice. We continue to focus our efforts on
identifying, adapting to and capitalizing on the changing dynamics prevalent in the converging
communications industry, as well as providing our wireless and IP services within the
communications sector.

Gross margins were 45.0% in the first quarter
of 2007 compared with 50.4% in the first quarter of
2006. The decrease in gross margins reflects a combination of
factors, including a higher mix of larger and longer-term projects
with discounted pricing from Management Consulting
Services, combined with new revenue from our Software Solutions
segment in the first quarter of 2007, a lower level of higher margin strategy consulting revenue as
compared to the first quarter of 2006 and amortization of intangible assets acquired with
Cartesian. Margin comparisons also reflect an increased number and percentage of large and
long-term projects in our Management Consulting Services segment, which while contributing to a
more sustainable revenue model with improved predictability, also results in discounted pricing to
clients, slightly reducing gross margins. Our Software Solutions segment gross margins are
expected to be comparable to our Management Consulting segment gross margins.

Operating expenses for the thirteen weeks ended March 30, 2007 include approximately $1.6 million
of expense related the Special Committee investigation of our past stock option granting practices
and related accounting as discussed in the section titled Special Committee Review into Stock
Option Grant Practices and Restatement in Item 4, Controls and Procedures. Selling, general and
administrative costs increased approximately $1.1 million or 20.3% as compared to the same period
of 2006. As a percentage of revenue, selling, general and administrative costs have decreased to
approximately 44.9% in the first quarter of 2007 from 78.7% in the same period of 2006. Selling
general and administrative expense in the first quarter of 2007 include approximately $2.2 million
of incremental expense associated with the operations of Adventis and Cartesian. We continue to
evaluate selling, general and administrative cost reduction opportunities to drive earnings.

OPERATIONAL OVERVIEW

The Company has two reporting segments, the Management Consulting Services segment and the Software
Solutions segment. Revenues in the Management Consulting Services segment typically consist of
management consulting fees for professional services and related expense reimbursements. Revenues
in the Software Solutions segment typically consist of management consulting fees for professional,
technical and integration services, fees for software licensing, support and maintenance and
related expense reimbursements.

Our Management Consulting Services are typically contracted on a time and materials basis, a time
and materials basis not to exceed contract price, a fixed fee basis, or contingent fee basis.
Revenues from time and materials contracts are recognized in the period in which our services are
performed. Revenues on contracts with a not to exceed contract price or a fixed cost contract are
recorded under the percentage of completion method utilizing estimates of project completion.
Contract revenues on contingent fee contracts are deferred until the revenue is realizable and
earned. The Management Consulting Services segment did not have any contingent fee contracts during
the first quarter of 2007 or 2006.

Our Software Solutions typically involve custom developed software for clients, leveraging the
supply of licensed modules from our AscertainTM software suite. Management consulting
and technical services are an integrated component of software solutions, ranging from developing
initial business and systems requirements, to software development, software configuration and
implementation, and post contract customer support. Revenues for Software Solutions contracts are
typically structured as fixed fee contracts or with a not to exceed contract price and are recorded
under the percentage of completion method, utilizing estimates of project completion. On a limited
basis, software contracts are structured with a contingent fee component. Revenues and costs
associated with contingent fee contracts were not material during the first quarter of 2007.

Generally a client relationship begins with a short-term consulting engagement utilizing the
services of a few consultants or piloting a software solution. Our sales strategy focuses on
building long-term relationships with both new and existing clients to gain additional engagements
within existing accounts and referrals for new clients. Strategic alliances with other companies
are also used to sell services. We anticipate that we will continue to pursue these marketing
strategies in the future. The type and volume of work performed for specific clients may vary from
period to period and a major client from one period may not use our services or the same volume of
services in another period. In addition, clients generally may end their engagements with little or
no penalty or notice. If a client engagement ends earlier than expected, we must re-deploy
professional service personnel as any resulting non-billable time could harm earnings.

Cost of services primarily consists of compensation for consultants who are employees, amortization
of share-based compensation for stock options and nonvested stock, amortization of certain
intangible assets, as well as fees paid to independent subject matter expert organizations and
related expense reimbursements. Employee compensation includes certain non-billable time, training,
vacation time, benefits and payroll taxes. Gross profit margins are primarily impacted by the type
of consulting and support services provided; the size of service contracts and negotiated
discounts; license fees; changes in our pricing policies and those of competitors; utilization
rates of consultants and independent subject matter experts; and employee and independent subject
matter expert costs, which tend to be higher in a competitive labor market.

Operating expenses include selling, general and administrative, intangible asset amortization, and
expenses related to the Special Committee investigation of our past stock option granting practices
and related accounting. Sales and marketing expenses are included in selling, general and
administrative expense and consist primarily of personnel salaries, bonuses, and related costs for
direct client sales efforts and marketing staff. We primarily use a relationship sales model in
which vice presidents, principals and senior consultants generate revenues. In addition, sales and
marketing expenses include costs associated with marketing collateral, product development, trade
shows and advertising. General and administrative expenses consist mainly of costs for accounting,
recruiting and staffing, information technology, personnel, insurance, rent, and outside
professional services incurred in the normal course of business. Included in selling, general and
administrative expenses are share-based compensation charges incurred in connection with equity
awards to employees and our board of directors.

CRITICAL ACCOUNTING POLICIES

While the selection and application of any accounting policy may involve some level of subjective
judgments and estimates, we believe the following accounting policies are the most critical to our
condensed consolidated financial statements, potentially involve the most subjective judgments in
their selection and application, and are the most susceptible to uncertainties and changing
conditions:



Allowance for Doubtful Accounts;



Fair Value of Acquired Businesses;



Impairment of Goodwill and Long-lived Intangible Assets;



Revenue Recognition;



Share-based Compensation Expense;



Accounting for Income Taxes; and



Research and Development and Capitalized Software Costs.

Allowances for Doubtful Accounts  Substantially all of our receivables are owed by companies in
the communications industry. We typically bill customers for services after all or a portion of the
services have been performed and require customers to pay within 30 days. We attempt to control
credit risk by being diligent in credit approvals, limiting the amount of credit extended to
customers and monitoring customers payment records and credit status as work is being performed
for them.

We recorded bad debt expense of $151,000 for the thirteen weeks ended March 31, 2007. We recorded
no bad debt expense in the thirteen weeks ended April 1, 2006, as no provision was necessary for
our allowance for doubtful accounts to maintain a level appropriate with the anticipated default
rate of the underlying accounts receivable balances. Our allowance for doubtful accounts totaled
$445,000 and $378,000 as of March 31, 2007 and December 30, 2006, respectively. The calculation of
these amounts is based on judgment about the anticipated default rate on receivables owed to us as
of the end of the reporting period. That judgment is based on uncollected account experience in
prior years and our ongoing evaluation of the credit status of our customers and the communications
industry in general.

We have attempted to mitigate credit risk by concentrating our marketing efforts on the largest and
most stable companies in the communications industry and by tightly controlling the amount of
credit provided to customers. If we are unsuccessful in these efforts, or if our

customers file for bankruptcy or experience financial difficulties, it is possible that the
allowance for doubtful accounts will be insufficient and we will have a greater bad debt loss than
the amount reserved, which would adversely affect our financial performance and cash flow.

Fair Value of Acquired Businesses - TMNG has acquired five professional service organizations over
the last six years. A significant component of the value of these acquired businesses has been
allocated to intangible assets. Statement of Financial Accounting Standard (SFAS) No. 141
Business Combinations requires acquired businesses to be recorded at fair value by the acquiring
entity. SFAS No. 141 also requires that intangible assets that meet the legal and separable
criterion be separately recognized on the financial statements at their fair value, and provides
guidance on the types of intangible assets subject to recognition. Determining the fair value for
these specifically identified intangible assets involves significant professional judgment,
estimates and projections related to the valuation to be applied to intangible assets like customer
lists, employment agreements and tradenames. The subjective nature of managements assumptions
adds an increased risk associated with estimates surrounding the projected performance of the
acquired entity. Additionally, as the Company amortizes the intangible assets over time, the
purchase accounting allocation directly impacts the amortization expense the Company records on its
financial statements.

Impairment of Goodwill and Long-lived Intangible Assets - Goodwill and other long-lived intangible
assets arising from our acquisitions are subjected to periodic review for impairment. SFAS No. 142
Goodwill and Other Intangible Assets requires an annual evaluation at the reporting unit level of
the fair value of goodwill and compares the calculated fair value of the reporting unit to its book
value to determine whether impairment has been deemed to occur. Any impairment charge would be
based on the most recent estimates of the recoverability of the recorded goodwill. If the remaining
book value assigned to goodwill in an acquisition is higher than the estimated fair value of the
reporting unit, there is a requirement to write down these assets. The determination of fair value
requires management to make assumptions about future cash flows and discount rates. These
assumptions require significant judgment and estimations about future events and are thus subject
to significant uncertainty. If actual cash flows turn out to be less than projected, we may be
required to take further write-downs, which could increase the variability and volatility of our
future results.

In accordance with SFAS No. 144, we use our best estimates based upon reasonable and
supportable assumptions and projections, to review for impairment of long-lived assets and
certain identifiable intangibles to be held and used whenever events or changes in
circumstances indicate that the carrying amount of our assets might not be recoverable.

Revenue Recognition  We recognize revenue from time and materials consulting contracts in the
period in which our services are performed. In addition to time and materials contracts, our other
types of contracts include time and materials contracts not to exceed contract price, fixed fee
contracts, and contingent fee contracts. We recognize revenues on fixed fee contracts and time and
materials contracts not to exceed contract price using the percentage of completion method
prescribed by AICPA Statement of Position (SOP) No. 81-1, Accounting for Performance
of Construction-Type and Certain Production-Type Contracts.

As a result of the Cartesian acquisition, we
now develop, install and support customer software in
addition to its traditional consulting services. We recognize revenue in connection with our
software sales agreements utilizing the percentage of completion
method prescribed by SOP No. 81-1. These agreements include software right-to-use licenses
(RTUs) and related customization and implementation services. Due to the long-term nature of
the software implementation and the extensive software customization based on customer specific
requirements normally experienced by the Company, both the RTU and implementation services are
treated as a single element for revenue recognition purposes.

The SOP
No. 81-1 percentage-of-completion methodology involves recognizing revenue using the percentage of
services completed, on a current cumulative cost to total cost basis, using a reasonably consistent
profit margin over the period. Due to the longer term nature of these projects, developing the
estimates of costs often requires significant judgment. Factors that must be considered in
estimating the progress of work completed and ultimate cost of the projects include, but are not
limited to, the availability of labor and labor productivity, the nature and complexity of the work
to be performed, and the impact of delayed performance. If changes occur in delivery, productivity
or other factors used in developing the estimates of costs or revenues, we revise our cost and
revenue estimates, which may result in increases or decreases in revenues and costs, and such
revisions are reflected in income in the period in which the facts that give rise to that revision
become known.

In addition to the professional services related to the
customization and implementation of its
software, the Company also provides post-contract support (PCS) services, including technical
support and maintenance services. For those contracts that include PCS service arrangements which
are not essential to the functionality of the software solution, we separate the SOP No. 81-1
software services and PCS services utilizing the multiple-element
arrangement model prescribed by Emerging Issues Task Force (EITF) No. 00-21, Revenue Arrangements with Multiple Deliverables.
EITF No. 00-21 addresses the accounting treatment for an arrangement to provide the delivery or
performance of multiple products and/or services where the delivery of a product or system or
performance of services may occur at different points in time or over different periods of time.
The Company utilizes EITF No. 00-21 to separate the PCS service elements and allocate total
contract consideration to the contract elements based on the relative fair value of those elements.
Revenues from PCS services are recognized ratably on a straight-line basis over the term of the
support and maintenance agreement.

We also may enter into contingent fee contracts, in which revenue is subject to achievement of
savings or other agreed upon results, rather than time spent. Due to the nature of contingent fee
contracts, we recognize costs as they are incurred on the project and defer revenue recognition
until the revenue is realizable and earned as agreed to by our clients. Although these contracts
can be very rewarding, the profitability of these

contracts is dependent on our ability to deliver results for our clients and control the cost of
providing these services. Both of these types of contracts are typically more results-oriented and
are subject to greater risk associated with revenue recognition and overall project profitability
than traditional time and materials contracts. Revenues and costs associated with contingent fee
contracts were not material for the thirteen weeks ended March 31, 2007 or April 1, 2006.

Share-based Compensation Expense - We grant stock options and non-vested stock to our employees and
also provide employees the right to purchase our stock pursuant to an employee stock purchase plan.
The benefits provided under these plans are share-based payment awards subject to the provisions of
SFAS No. 123R, Share-based Payments. Under SFAS No. 123R, we are required to make significant
estimates related to determining the value of our share-based compensation. Our expected
stock-price volatility assumption is based on historical volatilities of the underlying stock which
are obtained from public data sources. For stock option grants issued during the thirteen weeks
ended March 31, 2007, we used a weighted-average expected stock-price volatility of 71%. The
expected term of options granted is based on the simplified method in accordance with the SECs
Staff Accounting Bulletin (SAB) No. 107 as our historical share option exercise experience does
not provide a reasonable basis for estimation. As such, we used a weighted-average expected option
life assumption of 6 years.

If factors change and we develop different assumptions in the application of SFAS No. 123R in
future periods, the compensation expense that we record under SFAS No. 123R may differ
significantly from what we have recorded in the current period. There is a high degree of
subjectivity involved when using option pricing models to estimate share-based compensation under
SFAS No. 123R. Changes in the subjective input assumptions can materially affect our estimates of
fair values of our share-based compensation. Certain share-based payment awards, such as employee
stock options, may expire worthless or otherwise result in zero intrinsic value as compared to the
fair values originally estimated on the grant date and reported in our financial statements.
Alternatively, values may be realized from these instruments that are significantly in excess of
the fair values originally estimated on the grant date and reported in our financial statements.
Although the fair value of employee share-based awards is determined in accordance with SFAS No.
123R and SAB No. 107 using an option pricing model, that value may not be indicative of the fair
value observed in a willing buyer/willing seller market transaction.

In addition, under SFAS No. 123R we are required to net estimated forfeitures against compensation
expense. This requires us to estimate the number of awards that will be forfeited prior to vesting.
If actual forfeitures in future periods are different than our initial estimate, the compensation
expense that we ultimately record under SFAS No. 123R may differ significantly from what was
originally estimated. The estimated forfeiture rate for unvested options outstanding as of March
31, 2007 is 14%.

Accounting for Income Taxes - Accounting for income taxes requires significant estimates and
judgments on the part of management. Such estimates and judgments include, but are not limited to,
the effective tax rate anticipated to apply to tax differences that are expected to reverse in the
future, the sufficiency of taxable income in future periods to realize the benefits of net deferred
tax assets and net operating losses currently recorded and the likelihood that tax positions taken
in tax returns will be sustained on audit.

We account for income taxes in accordance with SFAS
No. 109, Accounting for Income Taxes and Financial
Accounting Standards Board (FASB) Interpretation No. 48, Accounting for Uncertainty in Income Taxesan interpretation of FASB
Statement No. 109 (FIN 48). As required by
SFAS No. 109,
we record deferred tax assets or
liabilities based on differences between financial reporting and tax bases of assets and
liabilities using currently enacted rates that will be in effect when the differences are expected
to reverse. SFAS No. 109 also requires that deferred tax assets be reduced by a valuation allowance
if it is more likely than not that some portion or all of the deferred tax asset will not be
realized. As of March 31, 2007, cumulative valuation allowances in the amount of $33.5 million
were recorded in connection with the net deferred income tax assets.
As required by FIN 48, we
have performed a comprehensive review of our portfolio of uncertain tax positions in accordance
with recognition standards established by the Interpretation.
Pursuant to FIN 48, an uncertain tax
position represents the Companys expected treatment of a tax position taken in a filed tax return,
or planned to be taken in a future tax return, that has not been reflected in measuring income tax
expense for financial reporting purposes. As of March 31, 2007, we have recorded a liability of
approximately $501,000 for unrecognized tax benefits.

We have generated substantial deferred income tax assets related to our domestic operations
primarily from the accelerated financial statement write-off of goodwill, the charge to
compensation expense taken for stock options and net operating losses. For us to realize the
income tax benefit of these assets, we must generate sufficient taxable income in future periods
when such deductions are allowed for income tax purposes. In some cases where deferred taxes were
the result of compensation expense recognized on stock options, our ability to realize the income
tax benefit of these assets is also dependent on our share price increasing to a point where these
options have intrinsic value at least equal to the grant date fair value and are exercised. In
assessing whether a valuation allowance is needed in connection with our deferred income tax
assets, we have evaluated our ability to generate sufficient taxable income in future periods to
utilize the benefit of the deferred income tax assets. We continue to evaluate the recoverability
of the recorded deferred income tax asset balances. If we continue to report domestic operating
losses for financial reporting in future years, no additional tax benefit would be recognized for
those losses, since we would be required to increase our valuation allowance to offset such
amounts.

International operations have become a significant part of our business. As part of the process of
preparing our financial statements, we are required to estimate our income taxes in each of the
jurisdictions in which we operate. The judgments and estimates used are subject to challenge by
domestic and foreign taxing authorities. It is possible that such authorities could challenge
those judgments and estimates and draw conclusions that would cause us to incur liabilities in
excess of those currently recorded. We use an estimate of our annual effective tax

rate at each interim period based upon the facts and circumstances available at that time, while
the actual annual effective tax rate is calculated at year-end. Changes in the geographical mix or
estimated amount of annual pre-tax income could impact our overall effective tax rate.

Research and Development and Capitalized Software Costs - Software development costs are accounted
for in accordance with SFAS No. 86, Accounting for the Costs of Computer Software to Be Sold,
Leased, or Otherwise Marketed. Capitalization of software development costs for products to be
sold to third parties begins upon the establishment of technological feasibility and ceases when
the product is available for general release. The establishment of technological feasibility and
the ongoing assessment of recoverability of capitalized software development costs require
considerable judgment by management concerning certain external factors including, but not limited
to, technological feasibility, anticipated future gross revenue, estimated economic life and
changes in software and hardware technologies. We capitalize development costs incurred during the
period between the establishment of technological feasibility and the release of the final product
to customers if such costs are material. During the thirteen weeks ended March 31, 2007, no
software development costs were capitalized and $272,000 of these costs were expensed as incurred.
No software development costs were incurred in the thirteen weeks ended April 1, 2006.

The company also incurs research and development costs associated with development of new offerings
and services. These product development costs are expensed as incurred. Research and development
costs associated with product development were $180,000 in the thirteen weeks ended April 1, 2006.
No product development costs were incurred in the thirteen weeks ended March 31, 2007.

Revenues increased 111.0% to $15.1 million for the thirteen weeks ended March 31, 2007 from $7.2
million for the thirteen weeks ended April 1, 2006. The increase in revenue is due to both organic
growth and acquisitions. The first quarter of 2007 includes $6.2 million in revenue related to our
acquired Adventis and Cartesian businesses. Organic revenue increased 23.7% in the first quarter
of 2007 as compared to the same period of 2006. As discussed in the Executive Financial Overview,
with the acquisition of Cartesian we have added a reporting segment, the Software Solutions
segment, in addition to our traditional Management Consulting Services segment.

Management Consulting Services Segment - Management Consulting
Services segment revenues increased $2.7 million, or 37.3% to
$9.8 million, for the first quarter of 2007 as compared to the same
period of 2006. This increase is primarily due to expansion globally, including the addition of Adventis, and
significant growth in projects sold to cable clients. During the thirteen weeks ended March 31,
2007, this segment provided services on 99 customer projects, compared to 83 projects performed in
the thirteen weeks ended April 1, 2006. Average revenue per project was $99,000 in the thirteen
weeks ended March 31, 2007 compared to $86,000 in the thirteen weeks ended April 1, 2006. The
increase in average revenue per project was primarily attributable to a shift in the mix of
business to larger and longer term management consulting projects in the thirteen weeks ended March
31, 2007. Our international revenue base of this segment increased to 22.8% of revenues for the
thirteen weeks ended March 31, 2007, from 3.0% for the thirteen weeks ended April 1, 2006, due
primarily to large new projects in Western Europe and the addition of Adventis.

Revenues recognized in connection with fixed price and contingent fee engagements totaled $4.2
million and $3.4 million, representing 43.1% and 46.9% of total revenue of the segment, for the
thirteen weeks ended March 31, 2007 and April 1, 2006, respectively. This decrease is due to the
mix of our business shifting to more time and material projects in the first quarter of 2007 as
compared to the same period of 2006.

Software Services Segment - Revenues of $5.3 million were generated for the thirteen weeks ended
March 31, 2007. All revenue was generated internationally. During the thirteen weeks ended March
31, 2007, this segment provided services on 53 customer projects. Average revenue per project was
approximately $92,000. In addition, revenues from post-contract support services were
approximately $428,000.

COSTS OF SERVICES

As a percentage of revenue, our gross margin
was 45.0% for the thirteen weeks ended March 31, 2007,
compared to 50.4% for the thirteen weeks ended April 1, 2006. The decrease in gross margin in the
first quarter of 2007 as compared to the same period of 2006 was attributable to a combination of
factors, including a higher mix of larger and long term projects with
discounted pricing from the
Management Consulting Services segment, revenue from our new Software Solutions segment in the
first quarter of 2007, a lower mix of higher margin strategy consulting revenue and amortization of intangible
assets acquired with Cartesian. Our Software Solutions segment gross margins
were 40.2% in the first quarter of 2007, which include an allocation of intangible asset
amortization of $183,000. Offsetting lower fee margins was shared based compensation net credits of
$148,000 related to revisions in assumed forfeiture rates in the
first quarter of 2007.

In total, operating expenses increased to $8.9 million for the thirteen weeks ended March 31, 2007,
from $5.8 million for the thirteen weeks ended April 1, 2006. Operating expenses include selling,
general and administrative costs (inclusive of share-based compensation), Special Committee stock
option investigation charges, and intangible asset amortization. For the thirteen weeks ended
March 31, 2007, operating expenses include Special Committee charges of approximately $1.6 million
related the investigation of our past stock option granting practices and related accounting.
These costs primarily consisted of professional services for legal, accounting and tax guidance and
the cost of the special committees outside counsel and forensic accountants.

Selling, general and administrative expense increased to $6.8 million in the thirteen weeks ended
March 31, 2007, compared to $5.6 million for the thirteen weeks ended April 1, 2006. As a
percentage of revenue, our selling, general and administrative expense was 44.9% for the thirteen
weeks ended March 31, 2007, compared to 78.7% for the thirteen weeks ended April 1, 2006. For the
thirteen weeks ended March 31, 2007, we had expense reductions
in the organic business of 19.5% as
compared to the same period in 2006, partially offset by $2.2 million in incremental expense due to
the acquired Adventis and Cartesian businesses. Included in the organic business expense reduction
are share-based compensation net credits of $0.3 million in the thirteen weeks ended March 31,
2007, compared to expense of $0.6 million in the thirteen weeks ended April 1, 2006 offset
increases attributable to our acquisitions. We continue to evaluate cost reductions through the
integration of our acquisitions and alignment of costs to revenues for each operating segment.

Intangible asset amortization was $540,000 and $115,000 for the thirteen weeks ended March 31, 2007
and April 1, 2006, respectively. The increase in amortization expense was due to the addition of
certain intangible assets as part of the Cartesian acquisition.

OTHER INCOME AND EXPENSES

Interest income was $417,000 and $535,000 for the thirteen weeks ended March 31, 2007 and April 1,
2006, respectively, and represented interest earned on invested balances. Interest income
decreased for the thirteen weeks ended March 31, 2007 as compared to the thirteen weeks ended April
1, 2006 due to reductions in invested balances attributable to cash utilized for acquisition and
operating losses in fiscal years 2006 and 2007. We primarily invest in money market funds and
investment-grade auction rate securities as part of our overall investment policy.

INCOME TAXES

In the
thirteen weeks ended March 31, 2007 and April 1, 2006, we
recorded an income tax benefit (provision) of $1,000 and $(21,000), respectively, related
primarily to state income taxes. For the thirteen weeks ended March 31, 2007 and April 1, 2006, we recorded no income tax benefit related to
our domestic pre-tax losses in accordance with the provisions of SFAS No. 109 Accounting for Income Taxes
which requires an estimation of the recoverability of the recorded income tax asset balances. We
continue to evaluate the recoverability of our recorded net deferred income tax asset balances and
record valuation allowances against assets generated due to domestic losses. If we continue to
report domestic, federal net operating losses for financial reporting, no additional tax benefit
would be recognized for those losses, since we would be required to increase our valuation
allowance to offset such amounts.

NET LOSS

Net loss
increased 2.4% to $1.7 million for the thirteen weeks ended March 31, 2007 from $1.6
million for the thirteen weeks ended April 1, 2006. The increase was primarily attributable to $1.6
million of costs related to the Special Committee investigation of our past stock option practices,
largely offset by improvements in operating results and reductions in share based compensation
expense of $1.2 million.

LIQUIDITY AND CAPITAL RESOURCES

Net cash used in operating activities was $2.5 million and $1.1 million for the thirteen weeks
ended March 31, 2007 and April 1, 2006, respectively and primarily related to increases in net
working capital, specifically accounts receivable balances, and net losses partially offset by
non-cash expenses.

Net cash used in investing activities was $3.4 million for the thirteen weeks ended March 31, 2007.
Net cash provided by investing activities was $5.4 million for the thirteen weeks ended April 1,
2006. For the thirteen weeks ended March 31, 2007 cash used in investing activities includes $5.2
million for the acquisition of Cartesian. Investing activities include net proceeds from sales
and reinvestments of auction rate securities of $1.9 million and $5.5 million in the thirteen weeks
ended March 31, 2007 and April 1, 2006, respectively. Cash used in investing activities also
includes $41,000 and $147,000 for the thirteen weeks ended March 31, 2007 and April 1, 2006,
respectively, related to the purchase of office equipment, software and computer equipment.

Net cash used in financing activities was $115,000 for the thirteen weeks ended March 31, 2007,
primarily related to payments on long-term obligations. Net cash provided by financing activities
was $5,000 for the thirteen weeks ended April 1, 2006, and was the result of proceeds received
from the exercise of employee stock options, partially offset by payments made on long-term
obligations.

At March 31, 2007, we had approximately $30.5 million in cash, cash equivalents, and short-term
investments. We believe we have sufficient cash and short-term investments to meet anticipated cash
requirements, including anticipated capital expenditures, consideration for possible acquisitions,
and any future operating losses that may be incurred, for at least the next 12 months. Should our
cash and short-term investments prove insufficient we might need to obtain new debt or equity
financing to support our operations or complete acquisitions. We have established a flexible model
that provides a lower fixed cost structure than most consulting firms, enabling us to scale
operating cost structures more quickly based on market conditions. Our strong cash position and
absence of long-term debt have enabled us to weather adverse conditions in the telecommunications
industry and to make investments in intellectual property we believe are enabling us to capitalize
on the current recovery and transformation of the industry; however, if the industry and demand for
our consulting services do not continue to rebound and we continue to experience negative cash
flow, we could experience liquidity challenges at some future point.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We do not invest excess funds in derivative financial instruments or other market rate sensitive
instruments for the purpose of managing our foreign currency exchange rate risk. We invest excess
funds in short-term investments, including auction rate securities, the yield of which is exposed
to interest rate market risk. Auction rate securities are classified as available-for-sale and
reported on the balance sheet at fair value, which approximates market value, as the rate on such
securities resets generally every 28 to 35 days. Consequently, interest rate movements do not
materially affect the balance sheet valuation of fixed income investments. Changes in the overall
level of interest rates do affect our interest income generated from investments.

We do not have material exposure to market related risks. Given the increase in our foreign
operations, foreign currency exchange rate risk has become more significant. Our foreign currency
exposure is primarily concentrated in the United Kingdom and Continental Europe. We believe the
countries in which we transact business and own assets are politically stable. We face currency
translation exposures related to translating the results of our worldwide operations into U.S.
dollars because of exchange rate fluctuations during the reporting period. We also face
transactional currency exposures relating to transactions denominated in currencies other than the
functional currency of the unit conducting the transactions. We monitor our foreign currency
positions based on our business strategy and foreign exchange markets and adjust foreign currency
holdings to maximize economic returns.

ITEM 4. CONTROLS AND PROCEDURES

Special Committee Review into Stock Option Grant Practices and Restatement

On November 13, 2006, the Company announced that following an initial internal review of its stock
option practices the Companys Board of Directors had appointed a Special Committee of outside
directors (the Special Committee) to conduct a full investigation of the Companys past stock
option granting practices and related accounting (the Independent Investigation). As a result of
the internal review and the Independent Investigation, management has concluded, and the Audit
Committee of the Companys Board of Directors concurs, that incorrect measurement dates were used
for financial accounting purposes for a majority of stock option grants and nonvested stock awards
made in prior periods. As previously disclosed in the Annual Report on Form 10-K for the fiscal
year ended December 30, 2006, the amended forms 10-Q/A for the interim periods ended April 1, 2006
and July 1, 2006, the Form 10-Q for the interim period ended September 20, 2006 and various Forms
8-K, the major contributing factors to the Companys stock option-related errors included:

(i)

accounting controls and procedures that were inadequate to ensure the accurate
reporting of expenses related to stock option grants and nonvested stock awards;

Evaluation of Disclosure Controls and Procedures and Changes in Internal Control Over Financial
Reporting

A review and evaluation was performed by our management, including our Chief Executive Officer (the
CEO) and Chief Financial Officer (the CFO), of the effectiveness of the design and operation of
our disclosure controls and procedures as of the end of the period covered by this quarterly
report. In making this evaluation, the CEO and CFO considered, among other matters, the results of
the Independent Investigation. Based on that review and evaluation, the CEO and CFO have concluded
that our disclosure controls and procedures at March 3l, 2007 were not effective to provide
reasonable assurance that information required to be disclosed in the reports we filed and
submitted under the Exchange Act was recorded, processed, summarized and reported as and when
required and that it was accumulated and communicated to our management, including the CEO and CFO,
as appropriate, to allow timely decisions regarding required disclosure due to the existence of a
material weakness in internal controls over financial reporting. Specifically, the Company did not
maintain effective controls over the determination of the accounting measurement dates for its
granting of stock options awards and nonvested stock awards. This material weakness led to the
restatement of the Companys previously issued financial statements.

In light of this conclusion, we have applied compensating procedures and processes as necessary to
ensure the reliability of our financial reporting. Accordingly, management believes, based on its
knowledge, that (i) this report does not contain any untrue statement of a material fact or omit to
state a material fact necessary to make the statements made, in light of the circumstances under
which they were made, not misleading with respect to the period covered by this report and (ii) the
financial statements, and other financial information included in this report, fairly present in
all material respects our financial condition, results of operations and cash flows as at, and for,
the periods presented in this report.

Material Weakness in Internal Control Over Financial Reporting

A material weakness is a control deficiency, or combination of control deficiencies, that results
in more than a remote likelihood that a material misstatement of the annual or interim financial
statements will not be prevented or detected. Management identified the following material
weakness in our internal control over financial reporting as of March 31, 2007.

We did not maintain adequate controls over our stock option and nonvested stock granting
practices and procedures. This lack of controls permitted stock options and nonvested stock
awards to be made with incorrect accounting measurement dates. Effective controls, including
monitoring and adequate communication, were not maintained to ensure the accuracy of
measurement dates, or the valuation and presentation of activity related to our stock option
and nonvested stock granting practices and procedures. This control deficiency resulted in
material misstatement of our stock-based compensation expense, additional paid-in capital,
unearned compensation and related disclosures that was not prevented or detected and in the
restatement of our previously filed annual and interim consolidated financial statements.
Accordingly, management has determined this control deficiency constituted a material
weakness.

Changes in Internal Control Over Financial Reporting

There were no significant changes in our internal control over financial reporting during the
quarter ended March 31, 2007 that materially affected, or are reasonably likely to materially
affect, our internal control over financial reporting.

Subsequent to March 31, 2007, the Company has adopted the following remedial measures that were
recommended by the Special Committee or management to address the issues leading to the incorrect
determination of measurement dates:



Board Issuance of Share-based Awards. In the future, all share-based awards
will be granted only by the full Board of Directors in compliance with terms of the equity
compensation plans and insider trading restrictions of the Company and the Securities and
Exchange Commission.



Human Resources Procedures. In the future, the human resources department may
only process grant paperwork and record grants in the equity compensation database upon
receiving approval of the grants through minutes of the Board of Directors provided by the
Secretary of the Board.



Stock Option Accounting Procedures. Each quarter, members of the accounting
department must verify the validity and terms of each new grant by comparing the terms of
the grant to minutes of the Board of Directors provided by the Secretary of the Board.

The Company also adopted a comprehensive array of process reforms designed to strengthen areas of
corporate governance that were identified as deficient during the Independent Investigation. Some
of these measures were undertaken independent of the formation of the Special Committee and the
initiation of the Independent Investigation.



Ensuring Adequacy of Internal Controls and Procedures. TMNG has hired a national
consulting firm to assist the Company with the planning for and implementation of a program
for compliance with Section 404 of the Sarbanes-Oxley Act and to help ensure that the
Company has properly designed and tested internal control structure and procedures for
financial reporting.

Addition of Accounting Personnel, Combined with Enhanced Training. TMNG has
hired additional accounting personnel to assist the Company with its accounting needs.
Training for accounting and non-accounting personnel will be enhanced. Management and the
Board will assess the need for additional personnel and/or training going forward.



Hiring of Legal Staff. TMNG has hired a General Counsel and a paralegal to
internally support Securities and Exchange Commission compliance and other matters.



Responsibilities of Chief Financial Officer. The Chief Financial Officers
duties and responsibilities that are not directly related to managing the financial affairs
of the Company are being reassigned so that his primary responsibility going forward will
be to manage the financial affairs of the Company and he will have very limited assignments
and responsibilities outside of this role. The Chief Financial Officers performance in
implementing new controls and procedures, ensuring compliance with Section 404 of the
Sarbanes-Oxley Act, and performing his other responsibilities will be reassessed by the
Chief Executive Officer, the Special Committee and the Board of Directors.



Reports to Special Committee on Implementation of Recommendations. Management
has been directed to provide monthly reports to the Special Committee on the implementation
of the corporate governance changes and other changes and actions mandated by the Board of
Directors.

The statements contained in Exhibits 31 and 32 to this Form 10-Q should be considered in light of,
and read together with, the information set forth in this Item 4.

ITEM 4T. CONTROLS AND PROCEDURES

Not applicable.

PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

We have not been subject to any material new litigation or claims since the time of our 10-K
filing, on May 14, 2007. For a summary of litigation in which we are currently involved, refer to
our Annual Report on Form 10-K, as filed with the Securities and Exchange Commission on May 14,
2007 and Note 9 of the Condensed Consolidated Financial Statements included elsewhere in this
report.

ITEM 1A. RISK FACTORS

For a full listing of TMNGs Risk Factors, please refer to our Annual Report on Form 10-K for the
year ended December 30, 2006 as filed with the Securities and Exchange Commission on May 14, 2007.
There has been no material change in the Risk Factors previously disclosed in our Annual Report on
Form 10-K.